Broadcom bids $130B for Qualcomm

Broadcom Ltd. on Monday offered about $130 billion for Qualcomm Inc., kicking off an attempt at the largest technology takeover ever in a deal that would rock the electronics industry.

Broadcom made an offer of $70 a share in cash and stock for Qualcomm, the world's largest maker of mobile-phone chips. That's a 28 percent premium over the stock's closing price on Thursday, before Bloomberg first reported talks of a deal. The proposed transaction includes about $25 billion of net debt.

Buying Qualcomm would make Broadcom the third-largest chipmaker, behind Intel Corp. and Samsung Electronics Co. The combined business would instantly become the default provider of a set of components needed to build each of the more than a billion smartphones sold every year. The deal would dwarf Dell Inc.'s $67 billion acquisition of EMC in 2015 -- then the biggest in the technology industry.

"The combination of the two companies could generate strong synergies and create a dominant wireless business and overall powerful global semiconductor leader," said Mike Walkley, an analyst at Canaccord Genuity.

Qualcomm is preparing to fend off the unsolicited offer, arguing it undervalues the company, people familiar with the plans have said. Qualcomm will argue that the proposal is an opportunistic move to buy the chipmaker on the cheap, the people said, and it will likely recommend that shareholders reject it. In a statement Monday, Qualcomm said it would "assess the proposal in order to pursue the course of action that is in the best interests of Qualcomm shareholders."

Hock Tan, president and chief executive officer of Broadcom, is making a play for Qualcomm as the once-unstoppable chipmaker limps through a rare moment of weakness. Qualcomm's most profitable unit, which licenses mobile-phone technology, is under assault from regulatory actions around the world and a legal challenge from Apple Inc. The lawsuit may prompt Apple to stop buying Qualcomm chips for use in the iPhone and other products, which would deal a major blow to a unit that drives the bulk of Qualcomm's revenue. Meanwhile, Broadcom counts Apple among its largest customers.

The bid values Qualcomm at about 21.2 times earnings before interest, tax, depreciation and amortization, compared with a median multiple of 22.5 for similar deals in the industry, according to data compiled by Bloomberg.

"The ball is now in Qualcomm's court, with management now under pressure to convince shareholders why current management will be better at driving value than Broadcom," said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co., in a note to investors. "We expect a considerable amount of back and forth from here, but believe a floor will be put under the shares at least."

Qualcomm shares rose 71 cents, or 1.2 percent, to close Monday at $62.52. Broadcom shares rose $3.89, or 1.4 percent, to close at $277.52.

Broadcom's Tan has played a pivotal role in a wave of consolidation engulfing the $300 billion semiconductor industry over the last three years. He took a former Hewlett-Packard division and built it into one of the largest chipmakers through a string of purchases. Tan established the current iteration of Broadcom in 2016 when his Singaporean company Avago Technologies Ltd. acquired U.S.-based Broadcom Corp. for $37 billion.

"This complementary transaction will position the combined company as a global communications leader with an impressive portfolio of technologies and products," Tan said in a statement Monday. "We would not make this offer if we were not confident that our common global customers would embrace the proposed combination."

Tan, who holds degrees in mechanical engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School, laid the foundation for future deal-making last week. In a widely broadcast announcement Thursday with U.S. President Donald Trump in the Oval Office, Tan said he will move Broadcom's headquarters to the United States.

The move was largely symbolic: Broadcom already lists San Jose, Calif., as a corporate co-headquarters. But analysts said the domicile change would make it easier for Broadcom to introduce deals from the U.S. and complete its $5.9 billion takeover of Brocade Communications Systems Inc. Announced last November, that transaction has been delayed at least three times by the Committee on Foreign Investment in the U.S., a panel that reviews the security risks of foreign acquisitions of American companies.

Business on 11/07/2017

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